Spot gold prices pulled back after rising above $652 per ounce late in London, after bouncing off a fresh 3-month below $645 per ounce earlier on Wednesday.
"A close below $635 would be the first close below a significant low in six months," says Christopher B. Langguth in Mitsui's latest technical note.
"Right now there is no reason to be long – but selling gold at support levels or valid up-trend lines is more often than not a bad idea."
Faced with the prospect of higher borrowing costs, the Dow Jones had closed Tuesday nearly 130 points lower, down almost 1% for the day.
The Nikkei in Tokyo then matched that loss by lunchtime on Wednesday, but recovered to end the session only 0.2% lower as 10-year US Treasury prices rose, pulling back yields from a new half-decade high of 5.30%.
European stocks also recovered early losses, putting the FTSE in London 0.4% higher by lunchtime as Wall Street futures pointed to a higher US opening.
At the Tokyo futures exchange, Tocom gold contracts for delivery in April '08 ended today 0.7% lower at the equivalent of $652.45 per ounce.
The drop came even as the Japanese Yen slid to a new four-and-a-half-year low against the US Dollar.
"Gold buying interest is very low key in Tokyo," said one analyst to Reuters.
The Economic Times of India also reports a lack of demand from physical gold buyers and jewelry fabricators overnight.
"Conditions look set to remain choppy ahead of a key directional economic data on Thursday and Friday," says today's note from Standard Bank.
"Downside support is set still at $645 with the 200-day moving average the next level below, around $638.
"The upside in gold still looks capped in current conditions around $655 area."
This week's key data reports for interest-rate forecasts include US business inventories for April, due today at 14:00 New York time.
Tomorrow brings the Producer Price Index, currently forecast by Wall Street to slow from 0.7% in April to 0.5% in May.
That's followed the next morning by a vote on Yen interest rates at the Bank of Japan, with US Consumer Price inflation data due on Friday at 12:30 New York time.
Already on Wednesday, weaker than expected wage data from the United Kingdom sent forecasts lower for Pound Sterling inflation, knocking the UK currency more than half-a-cent down against the Dollar to $1.9680 as higher interest rates looked less likely.
That capped gold bullion's losses vs. the Pound. But the Sterling price of gold still opened London at a fresh 5-month low at £327.41 per ounce before rising back to £329.50.
It then recovered to €489 by early afternoon.
Even with the sell-off in bonds raising the yield on 10-year US Treasuries by 0.5% in the last week alone, however, "too many people [still] think risk is dead, that they can't lose money anymore."
So said Tom Metzold, manager of the Eaton Vance Municipals Fund, at the Reuters Investment Outlook Summit in New York earlier this week.
Metzold has been raising the credit quality of bonds in his portfolio, underperforming competitors as a result but reducing the risk to his investors.
"We're selling stuff that others continue to buy," he told the conference, "but the spread [of junk bonds above US Treasuries] can't go to zero.
"There has to be some spread between a triple-A and single-B security."
Also speaking at the Reuters Investment Outlook Summit in New York, Dennis Gartman – editor and analyst of the eponymous $8,000 per year newsletter – said that gold's bull market remains fully intact.
"The highs are higher and the lows are higher," said Gartman.
"In that instance, one should tend to be a buyer of weakness [in gold] and not a seller of strength...You should probably buy it."
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